Vario Secure Inc. Q4 FY2025 earnings call

Updated Corporate Mission & Strategy Focus

• Refreshed 2025 corporate mission: "Accompany enterprises' network security to support safe and secure business", with a focus on fulfilling customer needs to protect what customers care about, rather than selling complex technical products.
• Shifted core growth strategy from direct sales and M&A to business partnerships as the primary growth driver, while still pursuing direct sales and M&A as supplementary channels; this change was made because direct one-by-one sales to small SMEs have limited scaling power, and M&A relies heavily on opportunistic deals.

Core Competitive Strengths

• Holds top 40.8% market share for firewall operation monitoring services among companies with fewer than 100 employees; most business is delivered via ~50 OEM/resale agents, so the VarioSecure brand is not publicly prominent.
• Operates a nationwide on-site response network: can reach any non-remote-island location in Japan within 4 hours via a partnership with one large national logistics/network firm, serving ~8,000 customer locations total.
• Business model is inherently low-churn: the company provides operational work rather than just hardware, and customers struggle to replace the service due to the widespread shortage of security talent.

Recent Operational Milestones & New Partnerships

• Successfully handled network security for the Osaka-Kansai World Expo media center, leveraging BPO strengths to provide temporary on-site/remote security for the 6-month event.
• Launched VarioSecure Cyber Insurance, a new service automatically bundled with core offerings, developed specifically for VarioSecure by Sompo Japan Nippon Koa Insurance to add cyber incident cost coverage beyond defense and recovery.
• Formed a business partnership with NTT Communications to open new sales channels via the NTT Group, which the company had no direct transactions with prior to this partnership.
• Formed a business partnership with Toyo Media Links, a firm with large market share in corporate surveillance cameras, to fuse cyber and physical security and reach SMEs with low cyber security awareness via existing physical security sales channels.
• Uses parent company HEROZ's custom generative AI tool HEROZ ASK, trained on VarioSecure's internal manuals and response history, to augment engineer work and reduce reliance on individual senior talent.

The firm operates two core segments: 1) Security BPO (BPaaS) – This is the primary segment, representing 87.9% of total revenue as recurring stock-based revenue. For the 2025 February term, total company revenue is 2.667 billion yen, so Security BPO revenue is approximately 2.346 billion yen, contributing 87.9% of total revenue. Churn for this segment remains below 1%, an extremely low stable level. 2) Integration business – This smaller secondary segment covers network and security infrastructure construction, contributing the remaining ~12.1% of total revenue. No separate absolute revenue figure is provided for this segment in the transcript.

• For the 2026 February term (ongoing fiscal year), management guidance targets 11.4% year-over-year revenue growth to 2.972 billion yen, 20% year-over-year operating profit growth (a 100 million yen increase), and 17% year-over-year net profit growth. The revenue growth is largely supported by full-year impact of the recently completed price adjustments that were delayed in the prior fiscal year.
• Mid-term management guidance targets 3.7 billion yen in revenue and 920 million yen in operating profit by the 2027 February term, an aggressive stretch target that relies on successful execution of product and sales channel expansion.
• The company targets increasing the managed security service revenue contribution to 94% by the 2027 February term, up from the current 87.9%.

• Securing skilled cybersecurity talent remains a major challenge: hiring experienced, ready-to-deploy security talent is highly competitive and largely opportunistic, with long lead times for training new hires even with AI augmentation.
• The large untapped target market of over 1 million Japanese SMEs currently have low awareness of cyber security risks and low willingness to outsource security operations, which slows customer acquisition growth.
• Business partnership development takes an average of 6 months from negotiation to launch, creating delayed revenue impact from new expansion initiatives.

Q: How does VarioSecure plan to address talent needs to hit the target of 94% managed security service revenue by 2027, and what is the timeline for training new hires? / A: VarioSecure continues to actively recruit experienced talent, focusing on second new grads and slightly older experienced candidates, and uses its own internal training program for new hires. To reduce reliance on individual expert talent, the company uses parent HEROZ's custom generative AI trained on internal data to augment engineer work, creating a two-brain model that cuts the time-to-independence for new hires from 3 years, and has already delivered tangible results.

Q: What is your strategic direction for new service development and future business partnerships? / A: VarioSecure plans to pursue partnerships with providers of common business services used even by very small SMEs with low cyber security awareness, such as copiers, staffing services, and physical security, to access untapped customer bases. The company will remain focused on security-focused offerings, but will also consider OEMing complementary offerings from partners to expand its product lineup.

Q: How do you plan to maintain and grow your current top market share in firewall/UTM monitoring for sub-1000 employee companies? / A: The key is capturing the 5-year device replacement cycle for existing installed devices. The company will target these replacement opportunities via both existing agent partners and new expanded sales channels to retain and grow share.

Q: What priorities guide your product portfolio expansion? / A: The core priority is building offerings that are "just right" for SMEs, avoiding unnecessary high-function, high-cost products, and focusing on maximizing customer return on security investment.